How to get started with contracting

Any new busi­ness requires exten­sive thought and plan­ning, but when it’s an exten­sion of an existing farm enter­prise, contracting really is a balancing act. We offer some top tips to help you get it right.

Machinery

The first consid­er­a­tion is an obvious one – what machinery do you need and how should you struc­ture it? Michael Read, managing director at Burden Bros, a John Deere deal­er­ship and contracting busi­ness in Kent, suggests looking at what kind of work needs doing, and on what land or soil type. “Will you need a lot of tech, tracking or moni­toring? We could put all the bells and whis­tles on but if you won’t use them, it’s dead money. And bigger horse power is not always better.”

However, scrimping on spec­i­fi­ca­tion can also be the biggest down­fall, he warns. “Be as up-to-date with tech­nology as you can afford to be.” It’s impor­tant to recog­nise idle time as this can be a common blind spot. And don’t scrimp on main­te­nance. “Ensure servicing is done at the right time – after that point you’re at risk.” Setting out a real­istic repair budget should also be a priority.

An extended warranty is a no-brainer, says Mr Read. “Machinery is your number one asset – if it’s not running, it’s not earning. We encourage our customers to take the monthly payment option which includes the machine, an extended warranty, a main­te­nance plan and tech support.”

Finan­cial impact

Costing out a machine needs to factor in multiple aspects, he explains. “Consider the impact on yield and produc­tivity, depre­ci­a­tion, cost of running and main­te­nance, fuel usage, ground work return, compaction and damage. It’s about looking at the return on invest­ment and whether you’re lever­aging the tech­nology.” Working with a good deal­er­ship is an inte­gral part of any contracting busi­ness – without func­tional machinery there is no busi­ness.

The most impor­tant thing between a contractor and dealer is honesty, says Mr Read. “Trust and trans­parency go both ways. Be honest about what you’re doing with your busi­ness and how things are going,” he explains. This includes talking about cash­flow, as the dealer may be able to help with credit or extended payments. Contrac­tors should chal­lenge their dealers on service level agree­ments, to be sure of what they are getting. And it’s always worth asking for figures and testi­mo­nials to back up claims of good service, he warns. “Prac­tice some due dili­gence.”

Buy or rent?

A big repair bill could cripple a new contractor in their first year, and renting means that any mechan­ical or tech­nical fault is the respon­si­bility of the deal­er­ship. “We always encourage new contrac­tors to rent new machinery as they can change their mind and purchase later. But do get the rental agree­ment in black and white.” Any purchasing deci­sions should be made with the advice of an accoun­tant, warns Mr Read. “When new to contracting, finance can be the weakest point.”

Insur­ance

Contrac­tors often need specialist insur­ance to ensure they’re covered for acci­dents, thefts or fires, according to Chris Walsh, farm insur­ance specialist at NFU Mutual. “Safe­guarding income is also impor­tant, espe­cially for contracting busi­nesses which generate signif­i­cant income during harvest and cannot risk having machinery out of action.”

The first consid­er­a­tion is prop­erty insur­ance which protects equip­ment, machinery and fuel. “As your busi­ness grows, ensure you have your prop­erty valued correctly to avoid under-insur­ance.” Public liability is also key. “The risk of injury and third-party prop­erty damage can increase as contrac­tors often work long hours on unfa­miliar farms. Consider exten­sions that cater for risks like planting of incor­rect seeds or damage that could result in the loss of a BPS or Envi­ron­mental Stew­ard­ship payment.”

As your busi­ness grows, ensure you have your prop­erty valued correctly to avoid under-insur­ance.

Chris Walsh

A legal require­ment for most busi­nesses is employer’s liability insur­ance, even if employees are family members or seasonal workers, says Mr Walsh. “It protects a busi­ness and its employees if they are injured or become ill due to their work.” It’s also advis­able to put a risk manage­ment plan in place to ensure compli­ance with health and safety regu­la­tions. “This shows insurers that busi­nesses are effi­cient and safe – some­thing that will be consid­ered when premiums are calcu­lated.” It may also be worth having busi­ness inter­rup­tion cover to pay for hiring a machine if your own is damaged, and consider loss of income cover too, he adds.

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CASE STUDY: Be proac­tive, advise your clients

Tom Robinson set up a contracting busi­ness after returning home from studying, when he realised that the family farm was unable to support him and his parents. After 10 years he now works across 162ha, buying and spreading 30,000t of chicken muck across South West England.

Staff

Having a good team makes all the differ­ence to a successful contracting busi­ness. “A driver will have his own tractor, tanker and spreader – that way they tend to look after them better,” says Mr Robinson. He also offers a bonus if his employees hit a target tonnage or bales in a day. Sunday is a day off for everyone and Mr Robinson uses little moti­va­tions or fines to look after his staff and improve effi­cien­cies.

“It’s about managing people and finding out their strengths and weak­nesses. I want to retain staff and customers like seeing the same driver.” Juggling different jobs can be hard, so Mr Robinson tries to do a weekly plan. “Reli­a­bility is how we pick up customers. Work with other contrac­tors if you need to – there’s enough work to go around.”

Clients

As Mr Robinson had previous connec­tions with poultry litter suppliers, he approached farmers directly to see if there was interest in using it. “I tried to get it into areas that didn’t have access to it. Now I have people ringing me.”

He has since expanded to take on sewage diges­tate, biosolids and farm­yard manure. It’s impor­tant to be able to advise clients on their system, and be proac­tive, says Mr Robinson. “If you know a customer will be due some work, phone them.”

Most of Mr Robinson’s spreading jobs are within an hour’s travel, but if a farmer wants a large order or is willing to pay increased trans­porta­tion costs, he will travel further.

He also does cereal contracting within a 25-mile radius of the home farm, drilling 200-240ha of crops, combining 40ha and doing mowing, baling and silage wrap­ping.

Charges

Mr Robinson charges by the tonne for muck and diges­tate jobs, with anything else charged by the hour or acreage. He charges a premium price because he offers a top service, with the right kit and suffi­cient capacity. “I need the best kit to do the job prop­erly and I can then charge a slight premium,” he explains.

“Most of the kit is bought new and will be paid for within a few years.” He gener­ally keeps trac­tors for 6,000 hours and every­thing is on an extended warranty so he knows the running costs of each machine, with most main­te­nance done in-house.